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Speaker 1: Welcome to the Bloomberg p m L Podcast. I'm pim Fox.

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Speaker 1: Along with my co host Lisa Bramowitz. Each day we

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Speaker 1: bring you the most important, noteworthy, and useful interviews for

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Speaker 1: you and your money, whether you're at the grocery store

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Speaker 1: or the trading floor. Find the Bloomberg p m L

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Speaker 1: Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot Com. Is

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Speaker 1: fifty billion dollars in tariffs on China to penalize them

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Speaker 1: for their intellectual property infringements. Too much or perhaps not enough.

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Speaker 1: Here to talk about that is Leland Miller, chief executive

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Speaker 1: officer of China Beige Book. He made it into our

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Speaker 1: eleven three oh studios despite the fact that we still

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Speaker 1: see a smattering of snow. So Leland, thank you so

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Speaker 1: much for being here. What was your take on the expectation.

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Speaker 1: We haven't gotten confirmation from President himself on the fifty

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Speaker 1: billion dollar figure, but what was your reaction to that number. Well,

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Speaker 1: it may surprise a lot of people, but I think

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Speaker 1: this is actually the baby option. So fifty billion certainly

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Speaker 1: sounds like a big number, but if you look at

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Speaker 1: what the stakes are in this, the types of numbers

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Speaker 1: the President has been throwing around. You have a hundred

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Speaker 1: billion dollar trade surplus that he said he was going

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Speaker 1: to reverse from the Chinese. We now have a potential

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Speaker 1: announcement of fifty billion in products getting tariffs on them

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Speaker 1: tariff The numbers aren't that big, So I think the

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Speaker 1: way that this is going to be looked at is

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Speaker 1: the smaller option that he could have gone. He still

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Speaker 1: may go bigger, but I think if you're Beijing, you're

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Speaker 1: looking at this and saying this is this is very

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Speaker 1: far from a worst case scenario. So does that mean

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Speaker 1: that they are going to lessen their threats of retaliation

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Speaker 1: or that it mitigates some of that threat or does

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Speaker 1: this just say well, they've got the upper hand because

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Speaker 1: they're dealing with someone who isn't sure how to how

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Speaker 1: to go about this. Well, the Trump White House believes

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Speaker 1: that they have all the leverage in this. At the

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Speaker 1: same time, there's apparently going to be a long comments

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Speaker 1: period where businesses can can can can talk about, you know,

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Speaker 1: alterations to this regime, where the Chinese can certainly come

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Speaker 1: and have talks. But I think that the most important

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Speaker 1: thing is that the president wanted to get a number

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Speaker 1: out there. Uh, he wanted to start this, and then

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Speaker 1: tariffs are only half of this. Tariffs are other ones

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Speaker 1: are gonna play the larger political be part of the

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Speaker 1: larger political conversation. But there are investment restrictions, there are

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Speaker 1: other things that are being talked about which will have

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Speaker 1: much farther, longer term UH repercussions in the relationship and

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Speaker 1: all of this. So it's very hard to evaluate what

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Speaker 1: this is gonna look like in the end. But from

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Speaker 1: the tariff number alone, this is actually on the smaller side,

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Speaker 1: I would say Leland. Looking at the China Daily and

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Speaker 1: the newspapers in in China, the UM spokesperson for China's

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Speaker 1: Ministry of Foreign Affairs says, quote, we want no trade

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Speaker 1: war with any one, but if our hands are forced,

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Speaker 1: we will not quail nor recoil from it. Therefore, if

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Speaker 1: the day did come when the U S took measures

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Speaker 1: to hurt our interests, we will definitely take firm and

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Speaker 1: necessary countermeasures to safeguard our legitimate interests. Now, are there

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Speaker 1: legitimate interests there? We're talking about commercial interests because this

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Speaker 1: is from the Farm Affairs Ministry. And at the same time,

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Speaker 1: when you look at what is popular at least into

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Speaker 1: carding the media in China. It is not necessarily US

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Speaker 1: China relations. It is China relations with other countries in

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Speaker 1: Asia and specifically with what is going on in Taiwan.

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Speaker 1: Right well, I mean right now the Chinese. This this

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Speaker 1: comment period is going to give the Chinese a wonderful

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Speaker 1: opportunity to be able to threaten repercussions on the economic side.

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Speaker 1: They'll threaten subtly some security issues, whether you're talking about

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Speaker 1: Taiwan is suddenly in the news, South China see may

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Speaker 1: become come back in the news before not too long. Uh,

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Speaker 1: but to threaten, Look, this can be bad for you too.

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Speaker 1: And I think that again, you know the Trump White

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Speaker 1: House things, they have all the leverage in this and

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Speaker 1: in a long term battle, China would be heard the

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Speaker 1: worst in the United States. But in the short term,

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Speaker 1: what China simply does is subsidizes industries, keep them afloat.

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Speaker 1: They'll feel less pain than than the U. S industry,

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Speaker 1: so they can play this game too. And I think

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Speaker 1: the major threat is the president announced is something the

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Speaker 1: Chinese announced the possibility of light retaliation, And then the

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Speaker 1: question is is whether the President gets angry at that

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Speaker 1: idea or whether he says Okay, well, this is exactly

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Speaker 1: what I wanted to do. I wanted to bring him

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Speaker 1: to the table. Let's talk. Yeah, well, I wanted just

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Speaker 1: to get your perspective about just other Republicans in Congress

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Speaker 1: and policy advisors in Washington, d C. I know you

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Speaker 1: talk with a lot of people in d C. What's

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Speaker 1: their response to this whole trade tension, but specifically with China,

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Speaker 1: and how are they worried about House will play into

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Speaker 1: mid terms. So Section three oh one is which which

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Speaker 1: it's what we're talking about today, is the the anti

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Speaker 1: China tariffs for unfair trade practices. Uh, that has widespread support.

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Speaker 1: It actually has a lot of bipartisan support. UM. Very

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Speaker 1: different from the steel and aluminum tariffs that we saw

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Speaker 1: a number of weeks ago. Those were uh not supported,

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Speaker 1: uh even within the White House, certainly amongst Republicans, certainly

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Speaker 1: in Congress. Uh, they were not supported because they thought

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Speaker 1: that it was a bad idea. They were not supported

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Speaker 1: because two thirty two is a blunt mechanism which could

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Speaker 1: cause a lot of problems if it goes into effect,

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Speaker 1: which it looks like it's not going to. So there

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Speaker 1: was two thirty two, the aluminium tariffs steel tariffs. We

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Speaker 1: were opposed that China tariffs. There's a lot of support

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Speaker 1: in that. I think that there's a bipartisant understanding now

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Speaker 1: that China has to feel pain or they will not move.

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Speaker 1: I think that the fear is that the President will

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Speaker 1: do something too aggressive or too loud, and he will

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Speaker 1: go too far in this and not accomplis is what

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Speaker 1: he what what people hope he will. But the idea

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Speaker 1: that they needed that China needs to be pushed actually

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Speaker 1: has broad support in d C. Just quickly, Leland, if

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Speaker 1: you were an investor making an investment in China, I

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Speaker 1: don't mean a stock investment, but I mean actually a

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Speaker 1: physical investment, would you do it now? I wouldn't hesitate

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Speaker 1: to do it right now if this is where it stops.

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Speaker 1: So if you, if you, if you, if this is

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Speaker 1: the president's broad blow against China, then this is actually

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Speaker 1: pretty mild, and I think the investors should probably be

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Speaker 1: pretty relieved. It could escalate though, we'll see. Thanks very much.

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Speaker 1: Leland Miller is the chief executive of China beij book

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Speaker 1: giving us his thoughts on tariffs and trade wars and

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Speaker 1: China and the President said to announce fifty billion dollars

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Speaker 1: worth of tariffs against a China over intellectual property violations.

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Speaker 1: Facebook shares are deepening their losses today, down nearly two

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Speaker 1: point five percent right now following ball games yesterday, but

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Speaker 1: the biggest two day loss UH in a very long time,

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Speaker 1: equal to a decline in market value equal to the

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Speaker 1: market capitalization of Tesla joining us now. David Garretty, chief

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Speaker 1: executive officer of g v A Research, we had some

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Speaker 1: words from Mark Zuckerberg. Clearly the markets have said it's

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Speaker 1: not enough. How do you interpret the market action and

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Speaker 1: the failure of Mark Zuckerberg to stave off some of

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Speaker 1: the declines a negative sentiment. Well, in early crises at Facebook,

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Speaker 1: you know, Zuckerberg has taken this same approach in terms

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Speaker 1: of having a blog post, having a very sincere sort

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Speaker 1: of video interval interview in a in a T shirt,

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Speaker 1: maybe a hoodie, depending how formally occasion might be. But nevertheless,

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Speaker 1: what's been put forward by Zuckerberg here is really just

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Speaker 1: a matter of saying, oh, we'll make a few fixes

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Speaker 1: and we'll promise to do better going forward. Uh. Certainly

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Speaker 1: you know the market isn't buying it. We also know

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Speaker 1: from what's been seeing relative to regulators and legislators, not

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Speaker 1: just here in the United States, but also overseas in Europe.

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Speaker 1: It's not proving to be satisfactory. People want to see

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Speaker 1: Mike Zuckerberg Mark Zuckerberg in person, front and center in

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Speaker 1: terms of doing congressional testimony or also impearing before either

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Speaker 1: Parliament in the UK or perhaps even the European Parliament.

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Speaker 1: And the one thing that we need to bear in

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Speaker 1: mind here is the fact that it's not just the

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Speaker 1: fact that regulators and legislators have these concerns. There's actually

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Speaker 1: a significant consent decree out there since two thousand eleven

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Speaker 1: that Facebook operates under which can have significant financial implications

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Speaker 1: for the company. Give people the details. How about this

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Speaker 1: consent to cree. They may not have that long of

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Speaker 1: a memory. Yeah, In two thousand eleven, ages ago before

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Speaker 1: the last presidential election to presidential elections, the Federal Trade Commission,

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Speaker 1: the FDC, and Facebook entered into an agreement at consent

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Speaker 1: decree in why Facebook said that if they were to

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Speaker 1: expose any users personal information for a day, that they

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Speaker 1: would pay a fine of up to forty thou dollars.

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Speaker 1: But now that we have an instance here going back

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Speaker 1: to two thousand and fourteen, where there were fifty million

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Speaker 1: users personal data that was exposed without their consent. Uh,

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Speaker 1: if that fine were applied to forty dollars a day

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Speaker 1: per user, the math works out to two trillion dollars

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Speaker 1: a day. And we're working here with Facebook that you know,

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Speaker 1: had a market cap that was roughly of that at

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Speaker 1: the time. Hold on a second, So could this fine

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Speaker 1: I mean, obviously it won't be implemented with two trillion dollars,

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Speaker 1: but could Facebook still face some significant fines? And who

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Speaker 1: would be the person to make that decision? Well, certainly

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Speaker 1: from the standpoint of the Federal Trade Commission. The FTC

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Speaker 1: has already expressed that they take very seriously any violation

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Speaker 1: of their consent decrees. So one might say that the

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Speaker 1: idea the decision for enforcement of this consent decree rests

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Speaker 1: very much with the Federal Trade Commission and what determination

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Speaker 1: they make in terms of violation having taken place. Obviously,

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Speaker 1: there will be I'm sure scores of lobbyists being deployed

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Speaker 1: by Facebook, but this is just one thing that's already

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Speaker 1: on the books that could be used against Facebook, not

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Speaker 1: to consider what other prospective measures might be applied. By

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Speaker 1: the UK or the EU or other countries, but has

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Speaker 1: it been applied already? This decree be the first time

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Speaker 1: the decree has been applied, but we haven't seen Facebook

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Speaker 1: paying any fines for it as of yet. In response

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Speaker 1: to the news that broke over the weekend through the

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Speaker 1: New York Times and The Observer, Okay, well, um, if

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Speaker 1: you go back to the November two eleven consent decree

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Speaker 1: that you're describing, and I'll put it out on a Twitter.

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Speaker 1: One of the complaints that is listed by the Federal

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Speaker 1: Trade Commission has to do with third party apps, which

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Speaker 1: is what we're talking about in terms of limiting the

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Speaker 1: ability of not on Facebook companies to access personal information.

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Speaker 1: And it says Facebook representative represented that the third party

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Speaker 1: apps that users installed would have access only to user

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Speaker 1: information that they needed to operate. In fact, the apps

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Speaker 1: could actually access nearly all of users personal data, data

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Speaker 1: the apps didn't need. In addition, Facebook had a quote

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Speaker 1: Verified Apps program and claimed it certified the security of

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Speaker 1: participating apps. It didn't. If this goes back to two

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Speaker 1: thousand and eleven, what has Facebook been doing for the

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Speaker 1: last seven years? Facebook essentially has been promising to do

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Speaker 1: better going forward. You know, overlook our sins um. You know,

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Speaker 1: we're good guys, um, stay with us. And people have

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Speaker 1: accepted that. And the question is, you know, Facebook, having

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Speaker 1: gotten to a scale where you've got over two billion users,

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Speaker 1: you know there's the ability here to move society, to

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Speaker 1: change nation. This obviously is something that cannot persist going forward.

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Speaker 1: The question really for the moment is are the regulators

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Speaker 1: going to enforce existing decrees on the books? And is

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Speaker 1: Facebook management really cognizant of that? Well, I'm glad you

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Speaker 1: mentioned management, and yes, that's a question for them to

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Speaker 1: uh answer, perhaps before Congress. But I'm wondering if investors

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Speaker 1: can put this question to the members of the board

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Speaker 1: of Facebook because they signed the proxy statement and if

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Speaker 1: there is a material loss, can't this open up the

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Speaker 1: company to lawsuits? I mean Erskine Balls has been on

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Speaker 1: the board for over six years. Read Hastings has been

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Speaker 1: on the board for more than six years, so has

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Speaker 1: Mark Entries, and Peter Thiel and Cheryl Sandberg has been

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Speaker 1: on the board for nearly six years now. Certainly the

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Speaker 1: board has to be concerned here with respect of their

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Speaker 1: fiduciary duty and the fact that where the liabilities have

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Speaker 1: not been adequately reported in terms of the company's financial statements.

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Speaker 1: I mean, these are significant concerns, and yes, the board

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Speaker 1: has come out and made a statement on their own,

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Speaker 1: but they next haven't owned up to the extent that

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Speaker 1: this is as big a problem that it could be.

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Speaker 1: I mean, this is an eight pound guerrilla or this

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Speaker 1: is the elephant in the room, if you will, that

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Speaker 1: no one really is paying much attention to as of yet.

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Speaker 1: And even though the board from the standpoint of governance

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Speaker 1: doesn't have majority control over the company that stays with

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Speaker 1: Mark Zuckerberg given the capital structure and the nature of

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Speaker 1: Facebook's classes of stock, uh, the board still has the

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Speaker 1: legal liability from a fiduciary standpoint. And yes, investors have

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Speaker 1: redress in this regard. So you know, we've already had

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Speaker 1: some class action suits have been filed against Facebook. But

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Speaker 1: clearly this opens the floodgates real quick in thirty seconds.

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Speaker 1: If this order is enforced by the FTC. What does

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Speaker 1: that mean for other companies, including Google, which shares down

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Speaker 1: more than three percent today. Well, I think with respect

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Speaker 1: too well, they weren't necessarily party to the consent decree,

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Speaker 1: but it's certainly will have to look more at the

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Speaker 1: environment and look at other countries the UK, the EU,

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Speaker 1: and to see whether there are other finds that are

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Speaker 1: potentially going to be levied. What are the changes that

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Speaker 1: are going to be made in terms of trying to

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Speaker 1: provide uh greater protection around personal information? You know, one

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Speaker 1: has to also stand back and say, you know, do

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Speaker 1: we have an Internet as it is currently structured and

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Speaker 1: operates that's really capable of being reformed, or do we

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Speaker 1: potentially have to start looking at other forms of how

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Speaker 1: else can we construct the Internet to put privacy first?

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Speaker 1: Because in the past it's really been more redundancy and openness.

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Speaker 1: We know that this is clearly something that has failed

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Speaker 1: in this area. So we have to find and make

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Speaker 1: a decision in a very large way how our society

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Speaker 1: is going to operate. Thanks very much, David Garty. He

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Speaker 1: is the chief executive of g v A Research. Now

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Speaker 1: let's turn our attention to Time Warner and A T

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Speaker 1: and T. Tara la Chapelle, our Deal's columnist for Bloomberg

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Speaker 1: gad Fly, joins us now in studio. You can follow

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Speaker 1: Tara on Twitter at Tara l A c H. All Right,

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Speaker 1: Tara l A c H, what are the attorneys for

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Speaker 1: Time Warner and a T and T saying today in Washington,

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Speaker 1: d C. Right, So today are the opening arguments. This

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Speaker 1: trial means a lot for the future of media, not

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Speaker 1: just this deal. But it's interesting because the d o

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Speaker 1: J attorneys that are trying to have this merger blocked

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Speaker 1: are basically asking the judge here to predict the future,

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Speaker 1: which is of course very hard to do and not

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Speaker 1: something that the law normally does. We're very backward looking

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Speaker 1: with these cases. So when you look back in history,

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Speaker 1: obviously Comcast NBS went through with concessions, and I think

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Speaker 1: that's why this A T and T Time Warner deal

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Speaker 1: stands a really good shot in court. Um, most people

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Speaker 1: seem to believe that the lawyers on the d o

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Speaker 1: J side have a lot of work to do, as

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Speaker 1: opposed to necessarily the companies, and I think that's a

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Speaker 1: big reason why it doesn't mean that the deal should

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Speaker 1: go through. It's just that there's not a whole lot

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Speaker 1: of precedent for blocking a vertical merger like this. So

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Speaker 1: what's the government arguing. The government is arguing that this

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Speaker 1: merger will raise prices for consumers by reducing competition, basically

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Speaker 1: because a T and T could in theory, keep Time

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Speaker 1: owners content for themselves for their own products, which they

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Speaker 1: say they're not going to a T and T. So

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Speaker 1: that that's preposterous, but it's really not. I mean, what's

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Speaker 1: the point of doing a merger like this except to

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Speaker 1: have more control over the content that is very popular

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Speaker 1: that people love to watch, like HBO, T N T,

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Speaker 1: TB S, Warner Brothers movies. Um, So it's a very

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Speaker 1: it's a justified concern. Um. But A T n T

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Speaker 1: is saying, look, we we just want to be able

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Speaker 1: to bundle more of these things with our services, make

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Speaker 1: better packages for our customers. We're not going to keep

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Speaker 1: this content out of the hands of our rivals. What

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Speaker 1: would be the point we generate fees from them airing this.

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Speaker 1: So A T N T and Time Warner, in addition

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Speaker 1: to the chief executives testifying their lawyers, how much do

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Speaker 1: you expect an argument that this is completely politically motivated

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Speaker 1: and sort of draw in some of the tweets and

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Speaker 1: comments that President Trump has made about this deal. I mean,

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Speaker 1: it seems like that would be that's an interesting route

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Speaker 1: for A T and T to play. I don't know

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Speaker 1: if that's going to work in court, because I think

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Speaker 1: what this is about is how is the landscape going

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Speaker 1: to look in the next few years and the next decade.

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Speaker 1: Who's going to be controlling what content? What are the

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Speaker 1: distribution channels going to look like? Online video? Not just

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Speaker 1: regular cable TV that you know we have. Now there's

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Speaker 1: going to be all these different ways of watching video

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Speaker 1: on your mobile phone, on your computer, I mean, all

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Speaker 1: these different things that we probably can't even dream about yet.

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Speaker 1: So I think they're more focused on that, and I

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Speaker 1: think it's a distraction to say that, you know, somehow

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Speaker 1: there's this Trump angle. I'm sure that Trump would love

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Speaker 1: to see this deal blocked and kind of stick it

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Speaker 1: to the CNN folks, But at the end of the day,

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Speaker 1: I don't think that's what these attorneys are I don't

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Speaker 1: think this is their angle. You you mentioned that, you know,

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Speaker 1: this is about something that's forward looking versus something that

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Speaker 1: is backwards looking. But if the government were to block this,

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Speaker 1: would they then have any basis to go after Comcast

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Speaker 1: and NBC and a variety of other deals in which

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Speaker 1: the distributor owns the actual content. I don't know how

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Speaker 1: motivated they are to do that, but I think it

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Speaker 1: is important to look at which companies are as a

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Speaker 1: result of A T and D Time Warner agreeing to

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Speaker 1: their merger seventeen months ago, have already started kind of

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Speaker 1: moving the ball forward on what deals they could do

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Speaker 1: as a follow up to this. Everyone's watching this deal

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Speaker 1: very closely, and I think what the judge knows is

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Speaker 1: that while he doesn't want to predict the future, and

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Speaker 1: he said that he's going to need a crystal ball

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Speaker 1: for this case, which is an ideal, he knows that

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Speaker 1: if this deal goes through a lot of other transactions,

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Speaker 1: you're going to come out of the woodwork. So I

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Speaker 1: think that's important to consider in this That's what I

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Speaker 1: was going to ask, you know, what are the implications

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Speaker 1: both legally and practically. And you're saying that if h

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Speaker 1: if Time Warner and A T and T win, it

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Speaker 1: will unleash an even bigger wave of M and A.

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Speaker 1: Is there a particular deal that you're looking at that

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Speaker 1: hinges most directly on the outcome of this case. I

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Speaker 1: don't think there's one that's announced yet that does. I mean,

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Speaker 1: obviously Disney, Fox, Comcast getting into the ring for that

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Speaker 1: UM has something to do with it. I mean it

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Speaker 1: comes down to this question about power over content, but

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Speaker 1: I think there's gonna be other machinations. I mean, think

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Speaker 1: about what a Verizon could do, What could some of

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Speaker 1: the tech companies do if this is allowed. I mean

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Speaker 1: there's a lot of different players that could get into

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Speaker 1: this because they see that content is so important, and

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Speaker 1: the content companies don't have enough scale in this day

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Speaker 1: and age. So I think they're seeing these vertical mergers

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Speaker 1: could be really good for them, but not so good

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Speaker 1: for consumers. At the end of the day, we mentioned

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Speaker 1: that not being good for consumers is that because we

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Speaker 1: would see the price of monthly subscription rates increase. I

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Speaker 1: think that could be a result down the road. So

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Speaker 1: what a T and T you saying is that what

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Speaker 1: would be the point right there? Their whole thing is

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Speaker 1: they want to lower prices, have these more attractive bundles.

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Speaker 1: But by controlling more content, you have more negotiating power

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Speaker 1: with your distributors, which then means there's less choice for consumers,

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Speaker 1: which then means you can raise your prices for your

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Speaker 1: own consumers. And it comes back to this idea of

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Speaker 1: media tribalism, which is something some media reports have been

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Speaker 1: saying lately where you know, look at Disney pulling their

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Speaker 1: content off of Netflix putting it on their own apps.

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Speaker 1: These companies are becoming more and more insular, which is

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Speaker 1: against the tide of what consumers want. And I think

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Speaker 1: it's very dangerous if we give them that ability. Tara

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Speaker 1: la Chapelle, thank you so much. A really insightful look

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Speaker 1: at what we're seeing in Washington, d C. Arguably the

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Speaker 1: most high profile antitrust case ever in US history. Thank

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Speaker 1: you so much. Tara La Chapelle, deal's columnist for Bloomberg Gadfly.

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Speaker 1: Read her stuff. There are fabulous columns. It's got a

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Speaker 1: great calm just to tell your TV's death by a

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Speaker 1: thousand streaming apps. It's a wonderful column. Let's talk about

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Speaker 1: commodities and specifically fossil fuels. John Love is the president

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Speaker 1: and the chief executive officer of the United States Commodity Funds,

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Speaker 1: helping the manager about three and a half billion dollars.

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Speaker 1: Based in Redondo Beach, California, but he joins us here

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Speaker 1: in an hour eleven three oh studios. John, always a pleasure,

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Speaker 1: Thank you for being here. Uh, tell us about what's

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Speaker 1: going on right now with the oil market. Dynamics. I'm

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Speaker 1: looking at crude on the NIMEX, down about one percent

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Speaker 1: at sixty four dollar barrow. What has changed in your

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Speaker 1: view over the last let's say three months when it

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Speaker 1: comes to the oil market. Sure, well, we had a

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Speaker 1: and thanks for having me, by the way, we had

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Speaker 1: a spectacular run since September. The between September and January,

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Speaker 1: the market was up w t I was up about

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Speaker 1: fifty six. We have since since they've been trading, you know,

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Speaker 1: a little bit in a side is range. And then

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Speaker 1: yesterday we had a very bullish stock draw on US

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Speaker 1: inventories which led to the price jumping three percent. I

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Speaker 1: think that might have just been a little bit of

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Speaker 1: an overshoot. People are pulling back today a little bit,

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Speaker 1: reassessing um as of last night, that's near the highs

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Speaker 1: for the January highs for the year. So it's uh.

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Speaker 1: I think I think there's kind of a probably arranged

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Speaker 1: based on certain factors right now in the crude market.

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Speaker 1: And UH, people are just kind of reacting to both

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Speaker 1: the bullish news yesterday and some of the things that

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Speaker 1: are maybe some of the head winds that are ahead. John,

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Speaker 1: I want to talk about actually investing in the oil market.

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Speaker 1: I'm looking at your us O fund. It's an e

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Speaker 1: t F that has nearly two billion dollars of assets,

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Speaker 1: and a lot of people think of it as sort

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Speaker 1: of the instrument to use when thinking of quick trading

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Speaker 1: on oil. I want you to talk about who you're

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Speaker 1: targeting with this fund, given the fact it doesn't really

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Speaker 1: track the crude spot price over time. Sure, well, it's

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Speaker 1: actually not possible to track the spoon the crude spot

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Speaker 1: price unless you actually own physical crude, and even then

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Speaker 1: you're paying um storage cost, transportation costs, insurance and all

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Speaker 1: of that stuff. And that's kind of sometimes reflected in

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Speaker 1: the sort of the premium you pay to buy oil futures.

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Speaker 1: Right now, though the crude market isn't a condition called

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Speaker 1: backwardation UM, which has been UM that which is actually

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Speaker 1: a boon to investors. That actually is kind of a

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Speaker 1: a yield you pick up when you roll the futures

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Speaker 1: from one month to another. So we've been in contango

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Speaker 1: for a number of years. We've we've vacillated between contango

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Speaker 1: and backwardation over the long term UM. So when people

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Speaker 1: say that USO doesn't track, it actually does track the

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Speaker 1: daily change in price, But over time, UM it appears

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Speaker 1: not to track UM track crude simply because of that

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00:23:47,880 --> 00:23:50,840
Speaker 1: contango backwardation factors. So that's something the investors really need

433
00:23:50,880 --> 00:23:54,880
Speaker 1: to watch is go to UM any any financial site

434
00:23:54,960 --> 00:23:57,600
Speaker 1: that tracks crude and find out is the market our

435
00:23:57,640 --> 00:23:59,960
Speaker 1: futures prices going up as you go out on the curve,

436
00:24:00,000 --> 00:24:02,680
Speaker 1: are they going down? If they're going up, that's a headwind.

437
00:24:02,680 --> 00:24:04,920
Speaker 1: If they're going down, that's a tail wind. Do you

438
00:24:05,080 --> 00:24:09,040
Speaker 1: get the sense that most of USOS investors are sophisticated

439
00:24:09,080 --> 00:24:12,240
Speaker 1: traders who understand this dynamic, because I know there was

440
00:24:12,280 --> 00:24:15,360
Speaker 1: a lot of attention on this fund back in when

441
00:24:15,400 --> 00:24:18,360
Speaker 1: the fund lost nearly forty percent and then the next

442
00:24:18,440 --> 00:24:21,200
Speaker 1: year when it only gained six point six percent back

443
00:24:21,400 --> 00:24:25,480
Speaker 1: even though oil had rebounded so much. Sure, actually that's

444
00:24:25,480 --> 00:24:29,280
Speaker 1: a beautiful test case for for this UM. This scenario

445
00:24:29,640 --> 00:24:33,600
Speaker 1: UM we had very steep contango, so USO it earned

446
00:24:33,600 --> 00:24:37,080
Speaker 1: six and a half percent the spot price UM theoretically

447
00:24:37,119 --> 00:24:39,560
Speaker 1: it went up forty percent. You couldn't actually earn that,

448
00:24:39,920 --> 00:24:41,760
Speaker 1: But if you look at some different products out there,

449
00:24:41,800 --> 00:24:44,359
Speaker 1: we have a product that owns the first twelve months

450
00:24:44,680 --> 00:24:46,480
Speaker 1: that was up in the high teens. We have a

451
00:24:46,520 --> 00:24:49,560
Speaker 1: Brent oil fund. I think that was around percent that year,

452
00:24:49,600 --> 00:24:52,879
Speaker 1: So you can get much closer to UM maybe that

453
00:24:52,960 --> 00:24:56,320
Speaker 1: theoretical return by kind of looking at the different different

454
00:24:56,320 --> 00:24:58,720
Speaker 1: options that are out there. Gasoline was another one, but

455
00:24:58,800 --> 00:25:00,800
Speaker 1: that's not always the case. The the other times when

456
00:25:00,880 --> 00:25:03,480
Speaker 1: USO outperforms UM, when you get a big pop in

457
00:25:03,480 --> 00:25:05,879
Speaker 1: the market, it's going to it's it's gonna tend to

458
00:25:05,920 --> 00:25:08,040
Speaker 1: track that pop better than something that's further out on

459
00:25:08,080 --> 00:25:10,200
Speaker 1: the curve. Uh. And it's certainly if you're in a

460
00:25:10,280 --> 00:25:12,720
Speaker 1: backward dated market, it will pick up that roll yield

461
00:25:12,720 --> 00:25:15,760
Speaker 1: and do better. So was the reverse example where it

462
00:25:15,840 --> 00:25:18,920
Speaker 1: was tough UM Right now if we stay in backwardation,

463
00:25:19,280 --> 00:25:21,280
Speaker 1: that's a little bit. It's almost like a little bit

464
00:25:21,280 --> 00:25:23,800
Speaker 1: of income to the fund UM. And of course interest

465
00:25:23,880 --> 00:25:26,320
Speaker 1: rates are rising as well, So where we had really

466
00:25:26,320 --> 00:25:29,040
Speaker 1: no income on the collateral to three years ago, we're

467
00:25:29,040 --> 00:25:33,000
Speaker 1: now starting to see some UM collateral return coming back in. John,

468
00:25:33,040 --> 00:25:35,000
Speaker 1: I'm gonna show my age and let you know that

469
00:25:35,040 --> 00:25:37,640
Speaker 1: the rig count was a closely watched number at one

470
00:25:37,680 --> 00:25:40,399
Speaker 1: point if you were interested in the oil market. Is

471
00:25:40,440 --> 00:25:43,320
Speaker 1: that still the case right now, or have new ways

472
00:25:43,440 --> 00:25:46,040
Speaker 1: of extracting oil from the ground really made the rig

473
00:25:46,119 --> 00:25:48,960
Speaker 1: count more of a fossil. Yeah, I think I think

474
00:25:48,960 --> 00:25:51,040
Speaker 1: both people are still watching it. I do not think

475
00:25:51,080 --> 00:25:54,280
Speaker 1: it's as UM efficient an indicator as it used to be,

476
00:25:54,320 --> 00:25:56,639
Speaker 1: as you said, simply because if you look over the

477
00:25:56,720 --> 00:26:01,560
Speaker 1: last five ten years, UM, what's happened is, especially since

478
00:26:01,560 --> 00:26:05,199
Speaker 1: the oil crash, rig counts UM are only half what

479
00:26:05,240 --> 00:26:07,360
Speaker 1: they were at their peak about two three years ago,

480
00:26:07,920 --> 00:26:11,000
Speaker 1: and yet we've hit record production in the US over

481
00:26:11,080 --> 00:26:14,280
Speaker 1: ten point four million barrels a day UM right now.

482
00:26:14,320 --> 00:26:16,680
Speaker 1: And the only reason that's possible is because the drillers

483
00:26:16,720 --> 00:26:19,639
Speaker 1: have become so much more efficient UM. They were forced

484
00:26:19,680 --> 00:26:23,040
Speaker 1: by the YEOPEC decision to defend market share back in

485
00:26:24,960 --> 00:26:26,919
Speaker 1: to really look at their costs and really start to

486
00:26:26,920 --> 00:26:30,000
Speaker 1: make changes, and so they are able to extract more UM.

487
00:26:30,119 --> 00:26:33,159
Speaker 1: We'll see how long that lasts, because they have gone

488
00:26:33,240 --> 00:26:36,560
Speaker 1: towards the more efficient rigs that the wells that were

489
00:26:36,600 --> 00:26:39,080
Speaker 1: already drilled UM, and they have not done as much

490
00:26:39,119 --> 00:26:40,920
Speaker 1: on the capex front, So we'll see if that lasts.

491
00:26:40,920 --> 00:26:43,159
Speaker 1: But to your point, UM, it's not as efficient an

492
00:26:43,160 --> 00:26:45,480
Speaker 1: indicator as it used to be. Yet people still watch

493
00:26:45,520 --> 00:26:47,840
Speaker 1: it very closely, John Love, Thank you so much for

494
00:26:47,880 --> 00:26:51,080
Speaker 1: being with us. John Love, President and Chief Executive Officer

495
00:26:51,160 --> 00:26:54,920
Speaker 1: of u s CF United States Commodity Funds, overseeing about

496
00:26:54,920 --> 00:27:00,439
Speaker 1: three and a half billion dollars in asset. Thanks for

497
00:27:00,480 --> 00:27:03,120
Speaker 1: listening to the Bloomberg P and L podcast. You can

498
00:27:03,160 --> 00:27:06,960
Speaker 1: subscribe and listen to interviews at Apple Podcasts, SoundCloud, or

499
00:27:07,000 --> 00:27:10,480
Speaker 1: whatever podcast platform you prefer. I'm Pim Fox. I'm on

500
00:27:10,520 --> 00:27:14,400
Speaker 1: Twitter at pim Fox. I'm on Twitter at Lisa Abramo.

501
00:27:14,520 --> 00:27:17,119
Speaker 1: It's one before the podcast. You can always catch us

502
00:27:17,160 --> 00:27:18,720
Speaker 1: worldwide on Bloomberg Radio